The debt ceiling might be unconstitutional, but now is not the time to find out

By Ezra KleinBy Ezra KleinJune 29, 2011

(Evan Vucci/AP)

If Congress blows past the debt ceiling and the Treasury Department simply continues borrowing to pay our debts, there’d be two primary obstacles to anyone trying to sue the administration: standing and the Constitution.

Standing — essentially, the right to sue — is tough because of a 1998 decision in which Chief Justice William Rehnquist, writing for the majority, threw out a suit brought by a group of congressmen alleging that the line-item veto reduced their power. Rehnquist said that the policy did not harm them in a “personal and individual way,” and so they didn’t have standing to sue. There’s no obvious reason a suit over the debt limit would fare any better.

Then there’s the Constitution itself. Section Four says “The validity of the public debt of the United States, authorized by law … shall not be questioned.” Bruce Bartlett argues, I think quite convincingly, that this could be read to invalidate any congressional actions — like the debt ceiling — that call the security of our debt into question. Whether the conservative Supreme Court would read it that way is, of course, a whole other question.

But back the conversation up for a moment. The danger of the debt limit isn’t that America won’t eventually make good on its debts. We have more than enough money to cover our bills, and the market knows that perfectly well. It’s that the fight over paying our debt will be so brutal, so irresponsible, and so unsettling that the market will reevaluate the faith it puts in America’s political system to pay our bills, reduce our deficit and make sound economic decisions in the years to come. Put slightly differently, the danger isn’t that investors never get paid, but that the way they get paid makes them lose faith in the country’s management, which in turn forces the entire financial system to reevaluate the safety of a bedrock asset — which is essentially exactly what happened in the last financial crisis, but on a much larger scale.

Layering a constitutional crisis over political gridlock may work in the sense that the Obama administration will win the court case. But it’ll fail terribly in terms of sustaining the market’s confidence in our political system. That’s a step toward total breakdown, not evidence that agreement can eventually be reached and economic renewal achieved. The debt ceiling needs to be resolved in a way that assures investors that America’s other economic problems will be resolved, too. A court case that affirms the executive’s right to rack up more debt and the political system’s inability to agree on a reasonable deficit reduction package is the precise opposite of that.

You know those old Looney Tunes where the Roadrunner and Wile E. Coyote would both run across an abyss, but the Roadrunner would get to the other side, while Wile E. would look down and fall? That’s sort of where we are with the markets. Right now, they’re confident that we’ll get everything under control, even though our finances are a mess and our political system is as paralyzed and gridlocked as it’s been in modern times. They’re the Roadrunner, in other words. In that context, the debt ceiling isn’t just about paying our bills. It’s about keeping the market from looking down.